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Generous dividend yields are making some European stocks with weaker fundamentals a little easier to love.

Investors who are prepared to take a chance in Europe's troubled periphery markets or out-of-favor sectors can be rewarded with dividends at or approaching double-digit levels. The thinking goes that these outsized dividends offer a degree of protection against downside risk.

It is an intriguing strategy for investors after a gung-ho start to 2013. European stocks have gained 2% since the start of the year, although equities in Switzerland, the United Kingdom, Sweden, Norway, Ireland, and Portugal have added 5% or more.

For some months now, dividend yields have been more lucrative than corporate bond yields. And Europe is an attractive place to seek them out: Stoxx Europe 600 constituents yield 3.5% on average, compared with about 2% for Standard & Poor's 500 issues.

EDP, which has a market value of €8.78 billion, falls into the category of companies that pay higher dividend yields than the coupons on their corporate bonds.

OF COURSE, PORTUGAL HAS ITS problems—like much of Western Europe—and a dim macroeconomic outlook is one of the biggest threats to EDP's prospects. The country is mired in recession and has endured years of crippling austerity as part of a multinational bailout. It has adhered to the terms of its program and is on course to meet budget-deficit targets. Last month it tapped international debt markets for the first time in almost two years, a sign of the progress that it has made.

All that bodes well for EDP, whose shares have gained almost 5% in value in the past 12 months but languish more than 20% below the level of five years ago. However, the company's fundamentals are strong.

Market conditions have been tough for a while, but 2013 should be EDP's earnings trough. Burdened by a Spanish windfall tax, it is expected to report earnings of 26 European cents a share in 2013, down from an estimated 29 cents in 2012.

The company will report figures for 2012 on March 5. Analysts at Berenberg Bank predict compound annual growth in earnings per share of 10% a year from 2013 to 2015, above the sector average of 8%.

EDP derives most of its profits from regulated networks in Portugal and Spain and from long-term contracts. These provide good visibility and a low operational risk, which investors like.

THE COMPANY IS ALSO GETTING A boost from its publicly listed wind-power unit, EDP Renovaveis (EDPR.Portugal). In the first nine months of 2012, EDPR saw profit jump 23% year-on-year. Only EDP's operations in Brazil seem to be a drag on performance right now.

The Lisbon-based company has a mountain of debt—about €18 billion, equal to a lofty 4.5 times earnings before interest, taxes, depreciation, and amortization. However, it doesn't face any short-term funding issues. That's partly because of the influence of its biggest shareholder, China's state-owned Three Gorges, which has paved the way for funding from Chinese banks. Three Gorges snared more than 20% of EDP in late 2011 in a sale of Portuguese government-owned assets as part of the country's bailout.

With that blanket of additional security provided by a deep-pocketed shareholder, EDP's dividend looks secure. The board's confidence was demonstrated last year with a pledge to pay out 55% to 65% of recurring net income to shareholders, with a floor of 18.5 European cents per share. At the current share price, that represents a dividend yield of 7.7%, a level that is hard to beat.

Besides the dividend, there's upside in the share price. As the macroeconomic environment improves, EDP is well placed to benefit. Berenberg Bank has a 12-month price target for EDP of €2.90, which suggests a potential gain of more than 20%.

EDP should be able to send a jolt through any portfolio.

THE EUROPE STOXX 600 INDEX closed Friday at 287.34 points, down 0.3% on the week.